Armed Keynesianism Assessed

Defense Spending Is Ineffective Stimulus

Defense Spending Is Ineffective Stimulus

Moneybox
A blog about business and economics.
Nov. 30 2011 11:16 AM

Armed Keynesian Works, But Not Very Well

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Robot planes stealing our defense jobs.

Photo by Deb Smith/U.S. Air Force/Getty Images

As everyone knows, conservative politicians hate Keynesian economics and no that the government can't create jobs, especially not by spending money. The exception, of course, is spending money on the military where suddenly "defense" spending becomes a critical jobs program. The hypocrisy is galling, but are Armed Keynesians incorrect? Via Robert Farley a study from Robert Pollin and Heidi Garrett-Peltier finds that defense spending does indeed create jobs under recession conditions but that "$1 billion spent on each of the domestic spending priorities will create substantially more jobs within the U.S. economy than would the same $1 billion spent on the military" with "investments in clean energy, health care and education."

This speaks to the program design and political challenges inherent in spending-side fiscal stimulus. A military spending program that's well-geared to meeting actual national defense needs is probably not going to be a great jobs program. Hiring a bunch of soldiers who you give only rudimentary training and equipment would be a very cost-effective jobs program, but a terrible way to organize your military. Roughly the same problem exists with the progressive favorite of infrastructure spending. There's the right way to build a train, and then there's the way that employs the most people. But the problems here are more political than economic. If the country has legitimate infrastructure needs then the fact that projects may not be very labor-intensive isn't a problem, that just goes to show that you need a lot of projects. Conversely, even if military spending isn't very cost-effective on the jobs side it's no coincidence that far and away the most successful example of job creation through government spending was the World War II build-up in 1940-41. It's not that this spending was particularly cost-effective, it's that we spent a lot of money because there was strong political consensus around the idea that a defense buildup was worth doing.